BERLIN — In the first major transaction since its formation earlier this year, private equity firm HMD Partners will invest about $50 million in the German fashion house Escada AG.
The agreement, which was signed Friday, calls for HMD to acquire up to a 29 percent stake in Escada through a capital increase, an acquisition of Escada AG’s treasury stock, now 8.5 percent of the current capital stock, and the subscription of a convertible bond. A special shareholders’ meeting has been called for Aug. 19 to approve the capital increase.
The investment is further contingent upon the refinancing of Escada AG’s bank debt, which was placed at $345.9 million as of April 30. Escada is in negotiations with the banks, and the result of those talks is expected to be announced shortly.
News of the prospective infusion by the U.S.-based fund, led by three veterans of Texas Pacific Group, came as the firm announced disappointing results for the first half of its fiscal year and acknowledged it wouldn’t meet its financial targets for the year. In the six months ended April 30, Escada lost $8.4 million as sales declined 25.3 percent to $354.7 million.
Dollar figures have been converted from the euro at current exchange. In local currencies, HMD plans to invest 45 millions euros, and Escada’s net loss for the half-year reached 7.3 million euros as sales receded to 306.6 million euros.
HMD has agreed to a price of $11.57 (10 euros) per share for all transactions — treasury stock, capital increase and convertible bond. This represents a premium of about 40 percent compared with the price of Escada stock during the past three months. HMD has consented to a lockup provision that prohibits the selling of its shares before 2006. Morgan Stanley was Escada AG’s financial adviser.
HMD will get three of the 12 seats on Escada’s supervisory board, although who will fill those slots wasn’t indicated. As reported last week, Escada’s management board was reduced to three members following the resignation of Richard Simonin, the board member responsible for licensing and accessories and, before its sale to Wella AG in April, Escada Beauté.HMD Partners, based in Palm Beach, Fla., with an office in London, specializes in investments in medium-sized retail and consumer goods companies. The company’s funding is furnished by institutional and private investors — generally high net worth individuals in Europe, Asia and the Middle East — and by HMD founders and partners Abel Halpern, the former European head of TPG; Federico Minoli, the former chief executive of Bally, which is owned by TPG, and attorney Peter Darrow.
The Escada investment meshes well with the kinds of deals HMD said it would pursue. As reported in March, HMD sought to make investments of between $25 million and $75 million in medium-sized, European fashion, retail and branded consumer goods companies with revenues ranging from between $100 million and $750 million.
An HMD spokesman said the club fund “likes the overall structure of the company and the quality of the Escada brand. Currently, like everyone else in the industry, [Escada] is going through hard times. They’ve acknowledged they’re overleveraged and have noncore assets they need to dispose of in time. But we’re confident in the core brand and look forward to working with management. As long-term investors, we’re not deterred by short-term circumstances.”
Up to 7.08 million new shares of common stock will be issued as part of the transactions, equal to the current 7.74 million shares outstanding minus the 660,000 currently held by Escada. The capital increase involves 1-for-1 preemptive rights for existing shareholders.
Escada chief executive Wolfgang Ley, who currently holds about a 22 percent stake, will not exercise his preemptive rights. His stake is expected to fall to about 15 percent and family members will hold an additional 2 to 3 percent, Ley said.
Escada said while HMD will acquire Escada AG’s treasury stock and subscribe for enough new stock from the capital increase to give HMD a total stake of 29 percent, those transactions won’t be sufficient to bring HMD’s investment up to the expected $50 million. To offset that, Escada will carry out a convertible bond issue for a total par value of up to $57.8 million, also with preemptive rights for existing shareholders. It wasn’t immediately known what portion of the bonds would be taken by HMD.Escada’s chief financial officer, Georg Kellinghusen, said the “cash inflow from the fund’s investment gives us an important base to ensure the retirement of the 100 million euro [$115.7 million] capital-market bond that falls due next year.” The deal will significantly strengthen Escada’s capital base, and also allow it to defer plans to divest its noncore operations until the market environment improves.
Turning to its half-year results, Escada had a net loss of $8.4 million versus net income of $7.3 million during the first six months of last year. Losses before interest and taxes totaled $4.6 million compared with earnings before interest and taxes of $21.2 million in the prior year.
Group sales in the six months declined 25.3 percent to $354.7 million from $474.9 million last year. For continuing operations, excluding the divested Escada Beauté and Kemper/Féraud operations, sales were down about 13 percent, and unfavorable currency effects subtracted about 5 percent from the top-line result.
Escada attributed the soft performance to a weak consumer climate in all markets. The Iraq conflict, political tension in North Korea and SARS have had negative psychological as well as physical effects that have impacted the bottom line, Ley said. Asia is a major market for Escada, and because of SARS, the company’s stores were closed for three months in several countries, and only now are slowly reopening. The war in Iraq further affected international tourist travel, another important sales channel for Escada.
Despite strong orders for the fall 2003 and spring 2004 seasons, Escada said it will not reach its profit targets for the fiscal year ending Oct. 31. “Adverse outside influences” will make it unfeasible to beat last year’s earnings before interest and taxes of $29 million, although the management board still believes a positive EBIT is possible. However, owing to uncertainty in the markets, no specific earnings projection was released.
Sales in fiscal 2002 dropped 8.7 percent to $892.7 million from $977.4 million the previous year.
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion (📷: Dominique Maître)
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)
Not only does #TheProfit return to CNBC tonight, but @marcuslemonis has launched @shopmarcus, a new shopping and lifestyle retail experience in Aspen and Chicago, with more locations to come. The retail stores offer in-store stylists and a variety of contemporary womenswear selections.
“It’s life, I’m going to face it,” @mingxi11 sighed. “I fell, but you know, I think the most important thing is that I get back up. I had the love, the help from my sister — the girl next to me Gizele [Oliveira] — she’s so nice. When I went backstage everybody was trying to comfort me like ‘Oh Ming, it’s OK.’ I’m really, really touched. I think it’s them who gave me the courage to go back on stage for the finale,” Xi told WWD of her fall at the @victoriassecret fashion show. (📷: David Fisher) #wwdfashion #vsfashionshow #victoriassecret
@louisvuitton tapped @therealpeterlindbergh for its latest city-centric photo book, which is part of a series called Fashion Eye. The primarily black and white book captures the spirit of Berlin in 57 images shot between 1989 and 2019. “Berlin is an inspiration for me, more than a city. I mean @millajovovich is simply Berlin!” said Lindbergh. #wwdfashion
“You know, I think audiences expect a certain performance so I have to deliver to them what they’re expecting to a certain degree. But I’m also a different actor and a different person, I have my own spin on the character,” says @noahegalvin of his takeover of the leading role in “Dear Evan Hansen” following the departure of @bensplatt, who originated the role. Read WWD’s interview with the 23-year-old actor on WWD.com #wwdeye (📷: @jilliansollazzo)
For pre-fall 2018, @etro created richly-colored wonderland, using tapestries, textiles and wallpapers from the Eastern world at large. The line featured floral and graphic prints and jacquard motifs, like this two-piece look featured here. #wwdfashion (📷: Giovanna Pavesi)
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)